- Beneficiaries generally pay no tax on amounts up to the TFSA's fair market value at the date of death.
- Earnings made after death and before the estate is settled are taxable, so the tax-free part is limited to the value at death.
- Whether any taxable amount changes an income-tested benefit depends on that benefit's own rules, so confirm before you act.
If you have inherited TFSA money and receive Old Age Security (OAS) or the Guaranteed Income Supplement (GIS), you may worry that the inheritance will reduce your benefits or trigger a clawback.
The answer starts with how the inherited amount is taxed. This article explains which parts are tax-free and which can be taxable, so you know what to raise with the CRA or an accountant.
This article covers Canadian federal tax law, which applies in every province.
Start with the tax treatment
Beneficiaries generally pay no tax on amounts up to the TFSA's fair market value (FMV) at the date of death, and that amount passes tax-free with no reporting required.
A useful first step is to work out which part of the inherited amount is the value at death and which part, if any, is later earnings. The benefit rules themselves are separate, and they should be checked for your own situation.
The parts that can be taxable
Earnings made after the date of death and before the estate is settled are taxable. The tax-free part is limited to the FMV at death.
How that works depends on the type of account and whether there was a successor holder:
| Situation | Tax result |
|---|---|
| Successor holder (spouse or common-law partner) | The deceased is not considered to receive an amount, and the account continues as a TFSA with its tax-free status intact; but if the deceased had an excess TFSA amount, the successor holder is treated as contributing that excess, and any resulting excess in their accounts is taxed at 1% per month while it remains; Quebec does not recognize successor holder designations |
| Deposit or annuity TFSA, no successor holder | The account stops being a TFSA at death, and all earnings after death are taxable to the beneficiary, with interest reported on a T5 |
| Trust TFSA, no successor holder | Income earned during the exempt period and paid to beneficiaries is taxable to them, and payments above FMV at death appear in box 134 of the T4A |
The exempt period for a trust ends at the earlier of the end of the year following the year of death or when the trust ceases to exist.
Ways the amount may be sheltered
- A successor holder, the surviving spouse or common-law partner, takes over the account and it continues as a TFSA, except that if the deceased had an excess TFSA amount, the successor holder is treated as contributing that excess and any resulting excess is taxed at 1% per month while it remains; Quebec does not recognize successor holder designations.
- A survivor who receives TFSA payments can contribute them to their own TFSA as an exempt contribution if it is made by December 31 of the year following death and does not exceed FMV at death.
- Starting January 1, 2026, post-death earnings up to the end of the rollover period can be designated as exempt contributions.
- A non-survivor beneficiary, such as a child, can contribute to their own TFSA only if they have available room, and cannot designate any amount as exempt.
The exempt contribution generally requires Form RC240 within 30 days of the contribution, and it is not available where the deceased's TFSA had an excess amount or where more than one survivor receives payments.
What this means for OAS and GIS
Where the money you receive is the tax-free value at death, it is generally not taxable to you. Where part of what you receive is taxable, such as post-death earnings, issuers report taxable payments on slips, such as a T5 for interest on a deposit or annuity TFSA or a T4A for trust payments.
Whether any reported amount affects OAS, GIS or another income-tested benefit depends on how that benefit measures income, and on the rest of your income for the year. That is worth confirming with an accountant or the program before you withdraw or move large amounts.
What to do next
- Find out whether you were a successor holder, a designated beneficiary, or whether the account went to the estate.
- Ask the issuer for the FMV at the date of death and for a breakdown of any post-death earnings.
- Watch for tax slips such as a T5 or T4A, which show taxable payments from the account, and keep them with your records.
- Consider whether an exempt contribution is available if you are a survivor, and note the December 31 and 30-day deadlines.
- Ask an accountant to test the effect on your benefits before you take out or transfer a large sum.
Frequently asked questions
Is the inherited TFSA amount taxable income for me?
Generally not, up to the TFSA's fair market value at the date of death. Earnings after death and before the estate is settled are taxable.
What if the TFSA went to the estate?
If no successor holder or beneficiary is named, the TFSA assets are directed to the deceased's estate and the will governs distribution. The estate's tax treatment depends on the facts and is worth confirming with an accountant.
Does a spouse who becomes successor holder have any tax to pay?
Usually the deceased is not considered to receive an amount where a successor holder takes over, and the account stays a TFSA with its tax-free status. There is an exception: if the deceased had an excess TFSA amount, the successor holder is treated as contributing that excess, and any resulting excess in their accounts is taxed at 1% per month while it remains. Quebec also does not recognize successor holder designations.
Can I put the money into my own TFSA?
A survivor can make an exempt contribution that does not affect their own room, within the deadlines. A non-survivor, such as a child, needs available room and cannot designate any amount as exempt.
Sources
- CRA – If you are a successor holder of a TFSA — canada.ca
- CRA – What happens when a TFSA holder dies — canada.ca
- CRA – Death of a TFSA holder (issuers) — canada.ca
- CRA – If you are a designated beneficiary of a TFSA — canada.ca
- CRA – Definitions for TFSA — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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